Understanding the Four GST Types in India

Introduction to GST

Goods and Services Tax (GST) was introduced in India on 1st July 2017, a significant change in the country’s tax system. It is an effort to establish one single indirect tax regime that would subsume many indirect taxes levied by the central and state governments; hence, creating a unified market for goods and services in the country has become prudent. The various kinds of GST in India are cautiously designed to ensure a hassle-free flow of input tax credits throughout the supply chain and make the taxation process easy.

Overview of GST Types

The Indian GST model covers four kinds of taxes; each is dedicated to a separate purpose, dealing with distinguished parts of the entire tax system. These GST types and their meaning are as follows:

• Central Goods and Services Tax (CGST)
• State Goods and Services Tax (SGST)
• Integrated Goods and Services Tax (IGST)
• Union Territory Goods and Services Tax (UTGST)

Replaced Taxes with GST

• VAT
• Octroi
• Entertainment Tax
• Tax on Lottery
• Luxury Tax
• Purchase Tax
• Service Tax
• Additional Excise Duty
• Central Excise Duty
• And more

Objectives of GST

• The elimination of multiple tax systems.
• Increase in compliance with businesses.
• To reduce the prices.
• Boost the country’s complete revenue.
• For higher efficiency and productivity

Different Types of GST Tax

The Goods and Services Tax (GST) in India is designed to accommodate different types of transactions, and the tax amount is levied accordingly. The two main categories of transactions are inter-state and intra-state.

Inter-State Transactions

• Inter-state transactions involve the movement of goods or services across state borders. In such cases, the Integrated Goods and Services Tax (IGST) is applicable. For example, if a supplier in Jharkhand sells iron ore to a consumer in West Bengal, the IGST collected is shared between the Central Government and the State Government of West Bengal (the state of consumption).

Intra-State Transactions

• Intra-state transactions occur when the supplier and the consumer are in the same state. In this scenario, the tax burden is divided between the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST). For instance, if a business in Jharkhand supplies 1 tonne of iron ore to a consumer within the state, the GST collected is split between the Central Government (CGST) and the Jharkhand State Government (SGST).

Based on the nature of these transactions, the GST system in India comprises three primary types of taxes:

• State Goods and Services Tax (SGST): The state governments levy this tax on intra-state transactions and are collected by the respective state where the supply occurs.
• Central Goods and Services Tax (CGST): This tax is levied by the Central Government on intra-state transactions and is collected by the Central Government.
• Integrated Goods and Services Tax (IGST): This tax is levied on inter-state transactions, including imports and exports, and is collected by the Central Government. The IGST revenue is then distributed between the Central Government and the State Government based on the destination of the supply.

The GST structure in India aims to streamline the taxation process, facilitate seamless inter-state trade, and ensure a fair distribution of tax revenue among the Central Government and the respective State Governments.

Also Read: Types of GST in India: CGST, SGST, and IGST

GST Types and Their Meaning

CGST (Central Goods and Services Tax)

Central Goods and Services Tax (CGST) is one of the GSTs levied by the Central Government on the supply of goods and services made within India’s territory. It is a consumption tax in that it is imposed at the final stage of consumption, whatever may have been the number of transfers of the goods or services effected before their use by the end-user.

The CGST is levied and collected on behalf of the Central Government to help raise a source of revenue to finance its disbursement and projects. It plays a very critical role within the CGST vs. SGST vs. IGST vs. UTGST framework in the sense that it sees to it that the Central government gets its share from taxes levied on intra-states.

SGST (State Goods and Services Tax)

The State Goods and Services Tax (SGST) is a level-equivalent levy charged by the respective state governments on supplies of goods and services within the state. The SGST is levied on the same transaction on which CGST is levied, but the payment has to be made to the state government.

The SGST is collected by the state governments, which adds a significant addition to their revenue for financing expenditure and development purposes. It forms an essential component of the difference between CGST and SGST since it guarantees that the state governments can lay rightful claims to the dues of tax income accruing from within the boundaries of transactions taking place inside the respective state.

IGST (Integrated Goods and Services Tax)

The duties of IGST (Integrated Goods and Services Tax) are levied on the supply of goods and services during inter-state trade or commerce, including the movement of goods or services from one state through another or to the state from abroad (imports) into India.

The central government collects it, but later, the amount of IGST is shared with the central and state governments based on the destination principle. This led to the revenues being shared with the consuming state of the goods or services, hence making their equity in the allocation of resources.

IGST is a very effective tool for easy inter-state trade apart from saving cascading taxes, as it takes care of allowing input tax credits to flow across states easily.

UTGST (Union Territory Goods and Services Tax)

UTGST has to be borne by the Union Territories (UTs) of India while transacting for the supply of goods and services and is levied by the central government. The same law applies to SGST but is for UTs only, which do not have their respective state government.

The UTGST applicability in union territories will thus ensure that the concerned regions are also covered under the GST regime and that the tax revenue from UTGST is properly utilized for the development and administration of the respective UTs.

Also Read: Overview of Union Territory Goods & Services Tax (UTGST)

Present Utilization of Various GST Types

Note:

• In case 1, the transaction is an intra-state supply, and both CGST and SGST are applicable.
• In case 2, the transaction is an inter-state supply, and IGST is applicable, collected by the Central Government.
• The SGST portion goes to the state government where the supply originates (Maharashtra, in this case).
• The CGST portion and the entire IGST go to the Central Government. The total tax amount (SGST + CGST or IGST) is the same in all cases, as the GST rate is 18%.

Comparison of GST Types

Note:

• SGST and CGST are levied concurrently on intra-state supplies of goods and services.
• UTGST is levied on supplies within a Union Territory with no separate state government.
• IGST is levied on inter-state supplies, including imports and exports.
• The priority of tax credit utilization determines the order in which the available input tax credits should be used.
• The benefiting authority refers to the government receiving tax revenue from the respective GST type. For IGST, the tax revenue is distributed between the Central Government and the State/UT Government based on the destination of the supply.

Benefits of the GST System

The implementation of the GST system in India has brought about numerous benefits, including:

• Removal of cascading taxes: The GST system eliminated the cascading effect of taxes, where the tax was levied on tax, by allowing for seamless input tax credit across the entire supply chain.
• Unified market: The GST created a unified market for goods and services across India, facilitating ease of doing business and promoting interstate trade and commerce.
• Simplified tax structure: The GST consolidated multiple indirect taxes into a single tax regime, simplifying the tax structure and reducing business compliance costs.
• Increased tax compliance: With its robust IT infrastructure and online filing mechanisms, the GST system has improved tax compliance and reduced the chances of tax evasion.
• Boost to the Indian economy: The GST has contributed to the growth of the Indian economy by creating a more transparent and efficient tax system, attracting foreign investments, and enhancing the overall competitiveness of Indian businesses.

Also Read: The Benefits Of Each Type Of GST Registration

Conclusion

Implementing the Goods and Services Tax (GST) in India has been a remarkable step towards a unified and streamlined taxation system. The four GST types in India – CGST, SGST, IGST, and UTGST – work to ensure a fair and efficient tax revenue distribution while promoting seamless inter-state trade and commerce.

By understanding the nuances of each GST type and their respective roles, businesses and consumers can navigate the taxation landscape more effectively and contribute to the overall success of the GST regime. As India continues to evolve and adapt to the changing economic landscape, the GST framework is a testament to its commitment to modernizing its tax system and fostering a business-friendly environment.

FAQs

• What is the Goods and Services Tax (GST)?

The Goods and Services Tax (GST) is an indirect tax regime that was introduced in India on July 1, 2017, to replace multiple indirect taxes levied by the central and state governments. It aims to create a unified market for goods and services across the country.

• What are the different types of GST in India?

The four types of GST in India are:

1) Central Goods and Services Tax (CGST)

2) State Goods and Services Tax (SGST)

3) Integrated Goods and Services Tax (IGST)

4) Union Territory Goods and Services Tax (UTGST)

• What is the purpose of CGST?

CGST is levied by the Central Government on intra-state supplies of goods and services. It is collected by the Central Government to raise revenue for its disbursements and projects.

• What is the significance of SGST?

SGST is levied by the respective state governments on intra-state supplies of goods and services. It provides a significant addition to the state government’s revenue for financing their expenditure and development purposes.

• When is IGST applicable?

IGST is applicable to inter-state transactions, including the movement of goods or services across state borders, imports, and exports. It is collected by the Central Government and later shared with the state governments based on the destination principle.

• What is UTGST?

UTGST is levied by the Central Government on supplies of goods and services within the Union Territories (UTs) of India, which do not have their state governments.

• How are the tax credits utilized under the GST system?

The tax credits are utilized based on a priority order. For intra-state supplies, SGST/CGST credits are utilized first, followed by IGST credits. For inter-state supplies, IGST credits are utilized first, followed by CGST/SGST/UTGST credits.

• What are the benefits of the GST system?

Some of the key benefits of the GST system include removing cascading taxes, creating a unified market, a simplified tax structure, increased tax compliance, and a boost to the Indian economy.

• How is the GST revenue distributed between the Central and State Governments?

For intra-state supplies, CGST revenue goes to the Central Government, and SGST revenue goes to the respective state government. For inter-state supplies, IGST revenue is distributed between the Central Government and the state governments based on the destination of the supply.

• What was the objective behind introducing the GST system in India?

The main objectives behind introducing the GST system in India were the elimination of multiple tax systems, increasing compliance among businesses, reducing prices, boosting the country’s overall revenue, and achieving higher efficiency and productivity.

Niharika Kapoor Content Writer

Niharika is a Freelance Content Writer and Translator with a Master of Arts in Literature. She has 5+ years of working in the same and has worked in different industries.

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